Mortgage rates near record low

August 31, 2012

WASHINGTON - Average U.S. rates on fixed mortgages fell this week and are just slightly above record lows reached earlier this year. The low rates have contributed to a modest housing recovery.

Mortgage buyer Freddie Mac said Thursday that the rate on the 30-year loan declined to 3.59 percent, down from 3.66 percent last week. Five weeks ago, the rate fell to 3.49 percent, the lowest since long-term mortgages began in the 1950s.

The average on the 15-year fixed mortgage, a popular refinancing option, slipped to 2.86 percent. That's down from 2.89 percent last week and from the record low of 2.80 percent five weeks ago.

Cheap mortgages are a key reason the housing market is finally started to rebound five years after the bubble burst.

Sales of newly built and previously occupied homes are well above last year's levels. Prices have increased consistently, largely because the supply of homes has shrunk while sales have risen. And builder confidence is at its highest level in five years.

Still, the housing market has a long way back to full health. Some economists forecast that sales of previously occupied homes will rise 8 percent this year to about 4.6 million. That's well below the 5.5 million annual sales considered healthy. Many people are still having difficulty qualifying for home loans or can't afford larger down payments required by banks.

Mortgage rates are low because they tend to track the yield on the 10-year Treasury note. A weaker U.S. economy and uncertainty about how Europe will resolve its debt crisis have led investors to buy more Treasury securities, which are considered safe investments. As demand for Treasurys increase, the yield falls.

To calculate average rates, Freddie Mac surveys lenders across the country on Monday through Wednesday of each week.

The average does not include extra fees, known as points, which most borrowers must pay to get the lowest rates. One point equals 1 percent of the loan amount.

The average fee for 30-year loans was 0.6 point, down from 0.7 point last week. The fee for 15-year loans also slipped to 0.6 point from 0.7.

The average rate on one-year adjustable rate mortgages fell to 2.63 percent from 2.66 percent last week. The fee for one-year adjustable rate loans was unchanged at 0.4 point.

The average rate on five-year adjustable rate mortgages declined to 2.78 percent from 2.80 percent. The fee held steady at 0.6 point.